https://fivethirtyeight.com/features/to-ease-the-student-debt-crisis-hold-colleges-responsible/
This does make sense. Colleges should be preparing students for a job market.
So selective colleges full of wealthy students will be less penalized than the schools that give a chance to poorer students who might be less educationally prepared and with less family resources.
Perfect. 
And I’m not defending taking really not qualified students; I’m talking about the run of the mill, B/C student, less APs, less guidance from home, who may take longer to graduate, may drop out because of financial problems at home, may graduate but may not have the same attainment as the student who comes into college on third base already.
It’s about time they do this. The following is a ranking of schools by graduation rate. Many of the schools with poor six year graduation rates would close, and that is a good thing.
This is one of the most stupid ideas! An essential feature of risk sharing is: there would need to be proportional incentive/return for taking on risk. What is the incentive/return? This is simply finance 101: risk-return tradeoff. The kind of stuffs we teach at an introductory finance course. Give me a break!
Have mixed feelings about this but any chance this would encourage U’s to take a closer look at prof’s grading profiles. Sure some classes are difficult and should be. But there are some profs that shouldn’t be teaching as they don’t have mastery of the material or don’t convey that well. And others just are incredibly hard graders, making it more difficult than it should be for students to continue in some majors…(yeah I’m probably dreaming on the last “issue”, it’s quite subjective)
Seems like Webber is trying to penalize the for-profit sector, which tends to target the latter students but tends to result in the highest levels of defaulting debt listed in a chart in the article. The public two year sector, which also tends to target these students, has the lowest levels of defaulting debt, presumably because the state subsidies make their prices low to begin with (so students need less or no debt to begin with).
This does not mean that there will not be additional effects (e.g. selection for wealthier students and such), particularly at less selective private non-profit schools.
If it were just the for-profits, then fine. I’d have no problem with it. But there are hundreds of directionals and regional schools that take and educate the students that are capable but with more challenges. This approach will impact the most vulnerable.
The public directional and regional schools do not seem to be particularly high levels of defaulting debt (although worse than flagships and community colleges), based on the table in the article of average loans not being repaid:
$4,990 for profit bachelor’s
$4,430 for profit associate
$2,760 private associate
$2,060 private master’s
$1,960 private bachelor’s
$1,830 public master’s (directional/regional schools)
$1,620 public bachelor’s (directional/regional schools, plus a few public LACs)
$1,350 public PhD (including flagships)
$1,220 private PhD
$920 public associate (community colleges)
Now, it is possible that some states whose public directional and regional schools are expensive with poor in-state financial aid (e.g. Pennsylvania) may have a significantly worse debt and default profile than typical.
I thought @kelsmom says that schools are “punished” if they have too many who default (and maybe that’s why some CCs no longer give Direct Loans.)
This is something that has been proposed by members of Congress already. Yes, schools are currently penalized for having a default rate that is too high … but this is different than the proposals for risk-sharing. I am not a fan.
It’s one of those things where if all you have is a hammer, every problem looks like a nail. For an economist, you get the results you want by giving or taking away money.
Many problems are more complicated than that, though.